Which tech stock is the best buy following today’s updates?
These two technology companies have both released updates today, but which one is the better buy for Foolish investors?
Nanoco's (LSE:NANO) full-year trading update has n't been well-received by the market. Its shares have fallen by 8% today even though it states in the update that it remains confident of achieving progress in commercialising its technologies.
However, Nanoco's sales for the full year were £1.9m, which is down slightly on 2015's figure of £2m. Furthermore, its net cash position has fallen to £14m from £18m at the end of January 2016, although all of these figures are in line with the company's expectations.
The specialist in the development and manufacture of heavy metal-free quantum dots and semiconductor nanoparticles for use in lighting, displays and solar energy states in today's update that it has made strong progress during the year. For example, it has moved to a non-exclusive licence agreement (from an exclusive one) with the Dow Chemical Co. This should allow it to open up additional routes into the display market and bodes well for its long-term future.
In terms of growth prospects, Nanoco is forecast to remain lossmaking in the current year but to move to profitability in the 2017 financial year. This indicates that investor sentiment could improve over the medium term and while it's a relatively risky buy, Nanoco has the scope to rapidly rise off the back of further commercial progress with its technology.
Also reporting today was Telit Communications (LSE:TCM). Unlike Nanoco, the market has reacted positively to its update, with its shares up by over 6% today. Its sales increased by 6.3% in the first six months of the current financial year, with its internet of things (IoT) sales rising by 23.4%.
This indicates that there's significant potential for long-term growth within the IoT space, with Telit's ability to provide integrated end-to-end IoT solutions for corporates and enterprises gaining strong traction. New client wins include SAP and Tech Mahindra, as well as John Deere.
Telit remains confident of its second-half performance and expects to report double-digit sales and profit growth for the full year. Its shares trade on a price-to-earnings growth (PEG) ratio of just 0.5, which indicates that they offer strong growth at a very reasonable price.
Of course, Telit's cost base continues to rise at a faster pace than sales, with investment in R&D being relatively high. However, it's targeting a reduction in operational expenses as a percentage of revenue of 8%-9% by 2018, which has the scope to boost margins and profitability.
As such, Telit seems to be a strong buy for less risk-averse, long-term investors. Its strong sales growth and the fact that it's highly profitable make it less riskier than Nanoco, while a clear growth strategy and exposure to the fast-growing IoT space make Telit the better buy of the two companies at the present time.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.